2 Kenny, a vendor for value added tax (VAT) purposes, owns a commercial building in Maseru, Lesotho, which is
partitioned into three units. The units are occupied as follows:
Unit 1: Occupied by Kenny to operate his business, which sells second-hand household appliances.
Unit 2: Rented out to CJ Plastic Products (CJ), a manufacturer of plastic products.
Unit 3: Rented out to Dee Baby Clothing (Dee), a business trading as a shop which buys and sells children’s clothing.
The following information is available in relation to Kenny’s income and expenses for the month of September 2019
(all amounts are inclusive of VAT where applicable):
Note M
Income
Sales revenue from Kenny’s shop 1 26,900
Rental income received from CJ 12,500
Rental income received from Dee 10,500
Expenses
Repairs 2 700
Electricity bill 260
Bank charges 500
Sundry expenses (all inclusive of VAT at the standard rate) 3,400
Notes:
(1) Kenny’s sales revenue of M26,900 includes the following:
(i) M1,500 for defective goods which were sold in September but which were quickly returned by customers.
Full credit notes have been issued, but no related adjustment has yet been made to the total sales figure. The
cost of the goods was M950 and input VAT suffered on this purchase was claimed in August 2019.
(ii) M800 for the sale of a refrigerator which was originally purchased from a non-vendor for M400. Kenny
incurred an additional M200 of repair costs paid to a vendor, to bring the refrigerator to a saleable condition.
The repair costs of M200 are not included in the repairs expense of M700.
(2) The repairs expense of M700 was payable to a non-vendor.
Required:
(a) Calculate the VAT payable by Kenny for the month of September 2019, and state the due date for submission
of the related VAT return.
Note: Indicate, by the use of a zero (0), items mentioned in the question for which no VAT is payable or
claimable. (8 marks)
(b) Kenny was informed during October 2019 by a reliable source that a customer had passed away. The customer
had bought a television on credit from Kenny in February 2019. Kenny wrote off the amount owed as a bad debt
during October 2019.
Required:
Explain whether Kenny can claim bad debt relief in his VAT return for October 2019 in respect of the bad debt
written off. (2 marks)
(10 marks)
9 [P.T.O.
3 William commenced employment as the managing director of Hydro-Energy (Pty) Ltd (Hydro-Energy), a resident
company, under a three-year contract on 1 April 2018. William’s remuneration package consists of the following:
(1) An annual salary of M720,000.
(2) An education allowance of M6,000 per annum per child aged between six and 18 years. William has two children
of nine and 20 years of age.
(3) A fully furnished house. William uses one of the company’s residential premises which are exclusively for the use
of senior employees. The market rental for similar houses is M8,500 per month. William pays M1,500 per month
to Hydro-Energy for the use of the house.
(4) A company motor car which is used for both business and private purposes. The adjusted cost base (ACB) and
market value of the car were M430,000 and M480,000 respectively when it was first provided to William on
1 April 2018. Hydro-Energy covers the running costs of the car up to a maximum of M35,000 per annum.
(5) A cell phone for which Hydro-Energy pays M900 on a monthly basis to the relevant utility company.
(6) A medical aid scheme administered on behalf of William for which Hydro-Energy contributes M1,200 per month
to the service provider. This benefit is available to all employees of Hydro-Energy on equal terms.
Required:
(a) Calculate the fringe benefits tax (FBT) payable and the total tax-deductible expenses of Hydro-Energy (Pty) Ltd
in respect of William’s annual remuneration for the year ended 31 March 2019. (8 marks)
(b) Explain how your answers to part (a) would differ if William were employed by a public international
organisation (PIO) instead of a taxable employer such as Hydro-Energy (Pty) Ltd.
Note: No calculations are required for this part (b). (2 marks)
(10 marks)
10
4 Hloni, a resident individual, has operated a self-employed business in Lesotho for the past 35 years. He ceased trading
on 30 November 2018 and emigrated to Botswana to live with relatives. He sold all of his business and investment
assets at their market values on 1 December 2018.
The following information is available in relation to the assets disposed of by Hloni:
Business assets
Adjusted cost base (ACB) Market value
on 1 April 2018 on 1 December 2018
Note M M
Furniture and equipment 120,000 180,000
Motor vehicles (see note) 1 460,000 350,000
Note:
(1) The ACB for motor vehicles includes M95,000 for a motor vehicle which was involved in an accident in April
2018. Hloni received insurance proceeds of M110,000, and immediately used all of the proceeds to replace the
car with a new one on 25 April 2018.
Investment assets
Market value
Cost on 1 December 2018
Note M M
Property 2 600,000 2,500,000
Shares 3 140,000 555,000
Notes:
(2) The cost of property comprised M16,500 for land; M533,500 for buildings; and M50,000 for the cost of building
a security wall. The land was purchased from his brother in September 1999 when its market value was M24,000.
The buildings were constructed in June 2000 and became readily available for use in November 2002. Part of the
buildings were used by Hloni for his business. The other part was rented out for commercial purposes, until the
date of sale. The annual rental income was M64,000. The security wall was built in May 2018.
(3) The shares relate to 1,500 shares held in a Lesotho company. Hloni had originally purchased 1,000 shares at
their market price of M80,000 in October 2012. The remaining 500 shares were acquired through a rights issue
for M120 per share in August 2016 when their market price was M135 per share.
Required:
Calculate Hloni’s chargeable gains and the adjustments to his chargeable income arising from the asset sales
during the year ended 31 March 2019.
Notes:
1. You are NOT required to compute Hloni’s total chargeable income for the year.
2. Relevant price indices are as follows:
September 1999 210
June 2000 260
November 2002 300
October 2012 510
August 2016 620
December 2018 680
(10 marks)
11 [P.T.O.
